Bonds Poised for Multi-Month Peak by/in Early-Aug ’22; Rates Heading Higher.
Outlook 2022/2023 – Mid-Year Review II
07-28-22 – The current time frame – from mid-June stock index cycle lows… remains a pivotal time, not only on an intra-year basis but also on an intra-decade basis. To reiterate from last issue:
“In order to prepare for the second half of 2022 and all of 2023, it is crucial to review what was anticipated for this time period – and the months or years leading up to it – as well as what has transpired in the first six months of 2022.”
There are many reasons for that, not the least of which is that late-2021 through early-2022 was forecast to time seismic shifts in many markets, in geopolitics (including War Cycles that had been forecast for late-2021 into late-2025), in food & energy markets, in currency markets, and in society and the economy.
In Nov ‘21, three primary stock indexes fulfilled major, multi-year upside price and wave (‘5’) targets and paved the way for a projected 6 – 12 month and possibly 1 – 2 year equity decline.
On the geopolitical landscape, Russia began to mount troops on Ukraine’s border in Nov ‘21 as the long-forecast 80-Year Cycle of War began to take hold (late-2021 – late-2025).
Gold & Silver had already signaled multi-month lows in late-Sept ’21 and were projected to surge into late-Feb/early-Mar ‘22.
Even a key market like Wheat was projecting an accelerated advance in 1Q ‘22, forecast to go parabolic into an early-March ‘22 peak.
The stage was set… Nov ’21 – March ’22 was the time for the proverbial ’first shoe’ to drop.
The Paradox
There were many technical and cyclical reasons why early-Jan ‘22 was projected to time a divergent peak in equities (with only a few stocks reaching new highs while most peaked at lower levels) followed by a multi-month sell-off.
There was also a unique fundamental anomaly that necessitated it – the disappearance of millions of 55+-year olds from the labor force that were relying on their stock investments to permit them to retire early.
That was described in the Nov ‘21 issue of INSIIDE Track, at the same time multiple stock indexes were portending final spike highs (identified as likely 5th of 5th wave peaks) during Nov ‘21 and major sell-offs to follow. This outlook was a small part of a larger discussion, focusing on the impending and unfolding (potential) threat to some cities in the years to come:
10-29-21 – “One of the most perplexing enigmas in the economy right now is the shortage of workers compared to available jobs. There are many reasons purported to be driving this challenge but I contend that the biggest one is the surging stock market of the past 18+ months…
US Bureau of Labor statistics show that in Sept. 2021 there were 3.6 million additional workers out of the labor force – who confirmed they did not want a job at this time – than at the same time in 2019… Looking a little closer at that data, it reveals that 89% of those 3.6 million former workers are 55 and older. Hmmm…
What part of the population is at greatest risk of catching Covid and/or suffering the worst symptoms if they caught the virus?
And what part of the population is closest to retirement age?
And what part of the population saw the biggest gains in their retirement portfolios over the past 18 months?
The answer is: The part of the population that is 55 and older!
While this demographic might not remain out of the workforce indefinitely, there are many who have opted for early retirement or at least decided to live off their investments for a prolonged period of time.
Paradoxically, the primary thing that might prompt them to rethink that decision would be the stock market – and by extension, their investment/retirement funds – taking a serious hit.
The only problem with that scenario is that corporations and employers do not sit around waiting for a change of heart like that. Instead, they find ways to better automate and/or eliminate certain jobs… never to be needed again.
Just as the 2008/2009 meltdown ushered in major shifts in the economy, real estate, and the resulting stocks of many companies, so too the 2020/2021 pandemic and reshuffling of the US economy is already ushering in major shifts…
What if a paradigm shift has taken hold?
What if a shift that was already going on prior to 2020, but only very subtly, was spurred into an accelerated phase in 2021?”
The Plunge
Everything appeared to be setting up for a pair of peaks – in early-Nov ‘21 & early-Jan ‘22 – followed by a significant sell-off in equity markets. That is what has unfolded – fulfilling what is likely the first phase of a larger, overall decline (into/through 2023).
One of the intriguing things about this 2022/2023 outlook is the corroborating fundamental events unfolding around the markets and described in that previous excerpt…
The Price
And then there are all the ramifications of that pesky inflation that keep plaguing the markets… and now real estate. Lack of affordability combined with escalating interest rates are making many cities unaffordable and the statistics are bearing that out.
After dismissing and minimizing the threats of inflation in 2020 and 2021, the Fed is now scrambling to catch up and ‘right their wrongs’. And as is usually the case, that will cause the pendulum to impulsively and reactively swing too far in the opposite direction.
There are, however, other complications on the 1 – 3 year time horizon. Some of them are linked to the ~10-Year Cycle of Inflation reiterated in a recent Weekly Re-Lay Alert (see pgs 4/5). Combined with escalating geopolitical tensions and the long-term outlook for a Dollar peak in 2023, another round of serious inflation could be just a couple years away…
Bonds & Notes are moving in lockstep with inflationary expectations for 2020 – 2022 (see pages 4 – 5) and with analysis for a multi-year peak in mid-2020 followed by a 2 – 3 year decline.
On an intermediate basis, they were projected to rebound from their mid-June low into late-July/early-Aug ’22 – the latest phase in a ~12-month cycle that has timed highs in July/Aug ’18, July/Aug ’19, July/Aug ’20 & July/Aug ’21. They are fulfilling this but have turned their weekly trends up, in the process.
That reinforces the likelihood for a multi-week peak on Aug 1 – 5 but argues for a future peak after an intervening pullback. From a price perspective, Bonds & Notes were expected to ideally rally back to 145 – 150/US & 122-00 – 124-00/TY+ before a top is set. They are nearing those target ranges as early-Aug ’22 cycles near, so a multi-month period of congestion could be unfolding.
Longer-term investors and hedgers could have liquidated long positions in Bonds & Notes in 3Q ‘20 and sold intermediate rallies in 3Q/4Q ‘20 and added to short positions in Aug ‘21, in sync with trading strategies described in INSIIDE Track. 3 – 6 month traders could have covered a portion of these short positions in June but should [reserved for subscribers].” TRADING INVOLVES SUBSTANTIAL RISK!
Bonds & Notes are poised for a rebound peak in late-July/early-Aug ’22 followed by another drop to new lows. Inflation cycles are poised to keep pressure on Bonds (and consequently stocks) in 2022 and to ultimately push interest rates higher into March/April ‘23.
2021/2022 was expected to usher in a dramatic shift in multi-decade cycles – timing everything from now-validated War Cycles (late-2021 into late-2025), European Unification Cycles (2022 – 2025), Drought Cycles that peak in 2021/22 and shift to Deluge Cycles in 2022/23, Agriculture Cycles that time 80-Year shifts (beginning in 2022/23), Currency Wars (2021)… and Interest Rates.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.